Via Rail eyeing private capital to build its own dedicated rail lines

From the National Post (Canada):

fp1205_viacorridor_c_mfVia Rail Canada hopes to reduce congestion by building its own network of dedicated tracks, and the passenger rail service wants to enlist the help of private equity to do it.

Currently, 90% of the track that Via uses is owned by Canadian National Railway Co., and this shared infrastructure can result in bottlenecks as freight and passenger trains vie for space.

“Our on-time performance has deteriorated significantly over the last 12 months,” Yves Desjardins-Siciliano, president and CEO of Via Rail, said in an interview at Via’s headquarters in Montreal.

“Congestion is the No. 1 issue, and it has negative impacts on the Canadian economy as a whole because it makes both freight traffic and passenger traffic less efficient.”

CN said it does not publicly disclose how much of its revenue comes from Via.

In the third quarter, Via’s trains were on time 77% of the time, down from 83% a year earlier. The worst performer was the tourist-friendly route from Toronto to Vancouver, known as the Canadian, where on-time performance fell to 25% from 41% in the second quarter.

Mr. Desjardins-Siciliano — who was Via’s chief corporate and legal officer before he was appointed CEO in May — said the solution is to gradually build up a network of dedicated tracks that Via can use, separate from the freight carriers and commuter trains. Currently, Via owns only 2% of the network on which it operates.

Via’s first priority is acquiring track in the busy corridor between Quebec City and Windsor, Ont., which accounts for 90% of the railway’s volume. But the challenge for the Crown corporation is finding the money to undertake the costly process of building its own dedicated line.

Last week, the federal government announced $204 million in new funding that will be divided between Via and federally-owned and operated airports.

Mr. Desjardins-Siciliano said he doesn’t know exactly how much of that money will go to Via, but the funds will be used to acquire rail lines. And he plans to ask provincial and municipal governments for funding as well if they want Via to provide additional service — something Amtrak has done in the United States.

Via will consider buying tracks that other railways don’t need anymore, acquiring existing railway beds that have been abandoned, or building new tracks from scratch, he added.

“You don’t build it overnight,” he said. “You build it a trunk at a time.”

Unlike his predecessors, Mr. Desjardins-Siciliano is also open to exploring funding options beyond taxpayer dollars, including private capital.

The Ontario Teachers’ Pension Plan and Borealis Infrastructure — an arm of the Ontario Municipal Employees Retirement System — paid approximately $3.4-billion in 2010 for the rights to operate High Speed One, the rail link between London and the mouth of the Channel Tunnel to France.

“So there is an interest in investing in infrastructure for passenger rail, provided there’s a business opportunity,” said Mr. Desjardins-Siciliano.

“And we believe that business opportunity is self-feeding, meaning if you have dedicated tracks, you’d be able to provide reliable, on-time service at greater frequencies and shorter trip times, and that’s what justifies private investment.”

Mark Romoff, president and CEO of the Canadian Council for Public-Private Partnerships, said he believes there would be “a lot of interest” from the private sector in Via’s project.

“Depending on how they chose to structure it, it could go ahead as a public-private partnership and yes, there would be a lot of interest on the part of the financial community to engage in a project like this,” Mr. Romoff said.

But Mr. Desjardins-Siciliano said he won’t make his pitch to private investors until Via improves its financial results.

“You can’t go to the private markets when you have bad on-time performance, lower or stagnant passenger volumes and congested rail infrastructure and are losing $300-million a year and expect private investors to be interested,” he said. “I believe you have to make the case first.”

In the third quarter, Via shrunk its operating loss by 12.1% to $65.8 million, allowing the government to reduce its contribution by 9.4% to $83.1 million. Passenger revenues rose 6.6% to $77 million.

Mr. Desjardins-Siciliano said his goal is to reduce Via’s reliance on federal funding by getting its busiest routes — those in the Quebec City-Windsor corridor and tourist-friendly offerings like the Canadian — to break even. The government would then only need to subsidize remote routes and capital investments like locomotives and train tracks.

“You don’t get subsidized to go to Cuba and someone shouldn’t be subsidized to go see the Rockies or go to the beach in New Brunswick,” he said.

You don’t build it overnight… You build it a trunk at a time

One way for Via to break even on its busier routes is to increase passenger volumes so that each train generates more revenue at a lower cost per passenger.

The company is making a concerted effort to become more attractive to potential passengers. Since 2007, Ottawa has invested almost $1 billion in Via and the railway has put that toward renovating its carriages, offering better food, improving service and developing promotions aimed at particular groups, such as university students and business travellers.

Mr. Desjardins-Siciliano said Via is focused on attracting people who usually drive but are frustrated by the amount of congestion they encounter.

“There are days when getting in and out of Montreal or Ottawa, for example, will be 50% if not more of the travel time between Montreal and Ottawa,” he said. “That’s where train travel is a huge advantage.”

He added that congestion is much more likely to motivate people to take the train than high gas prices, and he doesn’t expect much impact on passenger volumes from the recent drop in oil prices.

Ultimately, though, Via needs to change Canadians’ perceptions of the value of train travel if it wants to win them over, Mr. Desjardins-Siciliano said.

“One of the drawbacks or difficulties of promoting and marketing Via Rail is many Canadians have not experienced Via since they were kids, so they may have a romantic view of Via, or they may have a past experience of Via as being old technology,” he said.

“We are trying to get people to recognize that the Via of today is a much more modern experience than people may remember.”